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Answer by Ken Golliher:Checking the OFAC list is a risk management tool - it is not a legal requirement. You do it because the difficulty of checking the list is minimal compared to the damage of a violation. Exactly what you check against the list is a function of your institution's tolerance for risk.
In general, since the maker of the check is generally the borrower who was checked against the list at the time of the loan's inception and periodically thereafter in periodic "full file" comparisons, banks do not check the maker of the check for a loan payment against the OFAC list.
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Answer by Jim Bedsole: I would add that it is also a function of what overzealous regulators are insisting management undertake. For example, I have heard of several OTS-regulated banks that are being required to screen the sellers in real-estate lending transactions.
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Answer by Ken Golliher: Ooh, ooh, I heard that too and not just about the OTS. I'm just wondering what they think the practical effect of getting a hit on the seller is when their customer is the borrower. Clearly, they won't consummate the loan, so no funds will be blocked. Rather than RANT, I will simply say any "necessary" OFAC review on the seller needs to be done early in the application process - you don't want to be at the closing when the issue arises.
First published on BankersOnline.com 5/23/05
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